Mitigating Climate Risk: Definition of Carbon Emissions within Supply Chains

Where do the majority of your organization’s greenhouse gas emissions come from? You may be tempted to say that it’s your operations—but you’d be mistaken. In fact, 90% of an organization’s greenhouse gas emissions actually come from its supply chain. As a result, there is a real urgency to address carbon emissions within supply chains to, first and foremost, combat climate change and protect your business. 

How can your organization begin? 

Understanding carbon emissions and how they relate to your supply chain is a good starting point. By examining how your organization contributes to climate change through its supply chain, you can mitigate climate-related risks more effectively, benefiting the environment and your bottom line.

Understanding Carbon Emissions

Carbon emissions, also known as greenhouse gas emissions, are the release of carbon dioxide into the atmosphere by way of burning fossil fuels, like oil, natural gas, and coal. They are problematic because carbon dioxide absorbs infrared radiation, which leads to the warming of the planet. In addition to carbon dioxide, there are other greenhouse gas emissions we need to be aware of, including:

  • Methane (CH4)
  • Nitrous oxide (N2O)
  • Industrial gasses such as Hydrofluorocarbons (HFCs), Perfluorocarbons (PFCs), Sulfur hexafluoride (SF6), and Nitrogen trifluoride (NF3) 

Supply chains produce carbon emissions across the inventory lifecycle: sourcing, manufacturing, transportation, disposal, and energy consumption. Given the complexity and interconnectedness of the global supply chain, carbon emissions are seemingly built into traditional processes and modes of operation. 

But that’s not sustainable long-term. 

The Impact of Carbon Emissions on Supply Chains

Climate change isn’t just bad for the environment; it can also be bad for business. The byproducts of climate change can cause many supply chain hurdles:

  • Delays and route disruptions from extreme weather events, such as hurricanes or floods
  • Inflated prices due to resource scarcity
  • Logistics overhauls from new regulatory changes and updates

And it doesn’t stop there. Additional financial and operational implications include potential legal liabilities for not complying with environmental regulations or reputational damages for not proactively working to decrease carbon emissions.

Mapping Carbon Emissions in Supply Chains

How can your organization minimize carbon emissions while mitigating climate risks to your supply chain? Supply chain mapping is one of the first steps you need to take. By documenting the flow of materials through each tier of your supply chain, you can identify both carbon emission hotspots as well as potential risk areas. 

When doing this exercise, it’s important to fully explore the different scopes of emissions:

  • Scope 1 emissions: This includes emissions that your company makes directly, such as driving your company vehicles.
  • Scope 2 emissions: This includes emissions your company indirectly produces, such as purchasing electricity and heat for your buildings. Your organization doesn’t produce these emissions, but they are being produced on your behalf.
  • Scope 3 emissions: This includes emissions from your value chain, such as your suppliers, partners, vendors, and customers.

What does supply chain mapping look like in practice? 

For example, supply chain mapping with hard data and analytics may lead you to determine that one of your major supply chain hubs is in a hurricane hotspot. A large percentage of your goods go through this hub. If it shuts down as a result of a hurricane, you and your value chain will be out of luck. As a result of your mapping efforts, you can plan for an extreme weather event to avoid disruption by locking in backup routes that bypass the hub.

Strategies for Mitigating Carbon Emissions

Mitigating carbon emissions directly impacts climate change, reducing the risk to your supply chain. Here are three strategies your organization can implement: 

Adopt sustainable practices

Setting expectations with your team is foundational. Discuss strategies for reducing carbon emissions with key stakeholders, such as implementing energy-efficient technologies, optimizing transportation routes and logistics, and sourcing materials from sustainable suppliers. It’s important to extend your sustainable practices as far up and down the value chain as possible. 

Collaborate and engage with key stakeholders

Your suppliers, customers, and other stakeholders need to drive sustainable change together— you cannot do it alone. Consider developing sustainable practices as a group, and discuss the implications of climate change and carbon emissions on the entire value chain. Building cross-functional strategies will help drive change.  

Leverage technology and data analysis

Supply chain mapping, tracking transportation, measuring and optimizing carbon emissions—none of this is possible without the right data in hand. Technologies that enable you to capture and analyze this data play a major role in minimizing carbon emissions from your supply chain.

Success Stories From the Field

Looking for inspiration for your organization? Here are two success stories of reducing carbon emissions in different areas of the supply chain: 

  • Ingka Group: Owners of the world-renowned IKEA brand, Ingka Group has taken great strides to become a circular business by investing in a company that reuses 85% of all mattress waste and recycles mattresses. It is estimated that recycling a mattress saves 76 kilograms of carbon emissions compared to incinerating it. 
  • Kellogg: The consumer packaged goods company is focusing on supporting climate, economic, and social resiliency through a program that helps farmers improve productivity, regenerate soil health, and reduce greenhouse gas emissions. The program is extended to partners in their supply chain, such as suppliers, research institutions, and non-profit organizations. 

Reducing carbon emissions doesn’t need to be limited to the corporate sector—governments also play a role. The EU reduced net greenhouse gas emissions by 31% since 1990 through a combination of 3,000 new regulations and policies that specifically target climate change. 

By implementing best practices and collaborating with key stakeholders, your organization can also minimize carbon emissions from your supply chain.

It's Time to Take Action 

Understanding what carbon emissions are and how your supply chain contributes to them is the first step in mitigating climate risk. When you map your supply chain and understand where your carbon hotspots are—and where you carry the most risk—you can optimize your logistics and protect your business. Be sure to implement sustainable practices, collaborate with your entire value chain, and leverage key technologies to get the data and insights you need.

Don’t wait for climate change to impact your business. 

Take a proactive step towards reducing your supply chain carbon emissions with Trax Technologies. We offer a range of solutions and services, such as the Carbon Emissions Manager, which can help you achieve your sustainability goals. Our solution monitors all modes, vehicles, and geographic regions, in addition to integrating with comprehensive ESG reporting. 

Contact the Trax team today to learn more.

 

Trax Technologies

Trax Technologies

Trax is the global leader in Transportation Spend Management solutions. We partner with the most global and complex brands to drive meaningful optimizations and savings through industry-leading technology solutions and world-class advisory services. With the largest global footprint spanning North America, Latin America, Asia, and Europe, we enable our clients to have greater control over their transportation performance and spend. Our focus is on your success.